Stranger than fiction: The Italian mafia hearts green energy

Erika JohnsenPosted at 8:51 pm on January 23, 2013

The United States might not have a strong organized-crime culture comparable to Italy’s (that I know of…?), but it most certainly does have a robustly organized rent-seeking culture which, in terms of opportunities foregone, has plenty of the same detrimental net economic effects. The Washington Post just reported on a story that all too clearly demonstrates why it’s a terrible idea for national governments to be so heavily invested in picking marketplace winners and losers, in green energy as with everything else:

In an unfolding plot that is part “The Sopranos,” part “An Inconvenient Truth,” authorities swept across Sicily last month in the latest wave of sting operations revealing years of deep infiltration into the renewable energy sector by Italy’s rapidly modernizing crime families.

The still-emerging links of the mafia to the once-booming wind and solar sector here are raising fresh questions about the use of government subsidies to fuel a shift toward cleaner energies, with critics claiming huge state incentives created excessive profits for companies and a market bubble ripe for fraud. China-based Suntech, the world’s largest solar panel maker, last month said it would need to restate more than two years of financial results because of allegedly fake capital put up to finance new plants in Italy. The discoveries here also follow so-called “eco-corruption” cases in Spain, where a number of companies stand accused of illegally tapping state aid.

Because it receives more sun and wind than any other part of Italy, Sicily became one of Europe’s most obvious hotbeds for renewable energies over the past decade. As the Italian government began offering billions of euros annually in subsidies for wind and solar development, the potential profitability of such projects also soared — a fact that did not go unnoticed by Sicily’s infamous crime families.

Roughly a third of the island’s 30 wind farms — along with several solar power plants — have been seized by authorities.

The trouble is, as Conn Carroll points out, this situation is hardly new or even unique. When you set up wildly generous and bureaucratized subsidy systems that incentivize people to compete for profits in the political arena rather than the free market, you are setting yourself up for all kinds of corruption, fraud, and unintended consequences. I’m with Veronique de Rugy at NRO — you can’t make this stuff up.

Obviously, the mafia’s investment in the green-energy industry is very specific to Italy. But there’s at least one thing similar in this story to our experience in the U.S. When the government subsidizes an industry, it artificially boosts its profit potential and attracts investors that may not have consider investing before the subsidy was in place, often because the projects were deemed not viable or not profitable. The subsidies also tend to keep alive industries that may otherwise not survive because they aren’t profitable on their own. Moreover, the subsidies often go to industries or specific companies that would do very well without the subsidies but happen to be well-connected with the powers-that-be.

And I’m not even picking on green energy here — I’m picking on metastasized governments that use their political goals, no matter how ostensibly noble, as an excuse to provide ample opportunities for special interests to flout the free market and court political favors. …Looking at you, Obama administration.